BANK OF ALBANIA
Statement by the Supervisory Council of the Bank of Albania

Today, on 24 September 2014, the Supervisory Council of the Bank of Albania:

1 - Reviewed and approved the monthly Monetary Policy Report. After discussions on the recent economic and monetary developments in Albania and their outlook, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged, at 2.50%. The Supervisory Council deems that the monetary policy stance and current financial conditions are adequate to ensure the return of inflation to target in the medium term. For the reasons and arguments that motivated this decision, you may consult the statement on the monetary policy decision published in Bank of Albania's website: www.bankofalbania.org .

2- Approved the Financial Stability Statement and Report for the first half of 2014. The Supervisory Council of the Bank of Albania concluded that the performance and soundness of the banking sector and of the financial system is generally stable. The volume of the activity has expanded, deposits in the banking sector have grown and the financial situation has improved. The banking sector's liquidity and capitalisation indicators are at adequate levels. The performance of macroeconomic indicators has supported the stability of the financial system. The improvement of economic growth and fiscal policy and monetary policy actions are accompanied by a better functioning of financial markets and downward financing costs.

In the banking sector, the credit portfolio quality remains the main concern, although the ratio of non-performing loans was more stabilised during this period. In absolute terms, the non-performing loans shrank and their provisioning and collateralisation stand at adequate levels.

The banking sector's exposure to credit risk is assessed as similar to the previous period. However, in accordance with standards for best risk assessment, banks should assess their reserve funds for credit risk based on a conservative approach in their analysis of future developments.

In relation to the market risk and liquidity risk, developments in the external sector dictate the need to assess the potential impact on the domestic banking activity arising from actions by European authorities to revaluate the asset quality, capitalisation levels and restructuring measures by large European banking groups.

After the stress tests, the banking sector is overall resilient to supposed shocks arising from fluctuations in macroeconomic indicators and in the value of its investment portfolio. Capitalisation indicators were at adequate levels; however, banks should cautiously monitor the possible scenarios for the future developments and their needs for additional capital.
The complete Financial Stability Report will be published in the coming days.

3- Discussed the effects and impact from the further easing of the monetary policy by the European Central Bank (ECB) for the administration of the foreign currency reserve. In concrete terms, as a result of this move, the rate of return for euro investments in financial instruments for a maturity of up to three years, with an acceptable level of credit risk, is negative (below zero).

4- Was informed on and analysed the measures taken by the Bank of Albania for the normal functioning and activities regarding money issue operations and guaranteeing the physical security of monetary assets. The Bank of Albania assured that it has the safekeeping and security of monetary assets in control, including storage facilities. Developments in recent events have led to leaking of classified information, at different levels according to legal definitions, but the Bank of Albania has taken and continues to take measures for guaranteeing and strengthening the security elements.

5- Was informed on developments in the payment systems during the first half of 2014. The systems have reflected security and efficiency, which are necessary to ensure the stability of the basic infrastructure for payments in the national currency. In this regard, the focus of work has been on approximating payment systems oversight with the best international, especially European, practices.